Cash World Gold Buyers Pty Ltd and Commissioner of Taxation (Taxation)

Cash World Gold Buyers Pty Ltd and Commissioner of Taxation (Taxation) [2020] AATA 1546 (28 May 2020)
Division:TAXATION AND COMMERCIAL DIVISION
File Number(s): 2016/0273
Re:Cash World Gold Buyers Pty Ltd
APPLICANT

AndCommissioner of Taxation
RESPONDENT

Decision
Tribunal:Ms G Lazanas, Senior Member
Date:28 May 2020
Place:Sydney

The Tribunal affirms the decisions under review.
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Ms G Lazanas, Senior Member
Catchwords
TAXATION – GST – input tax credits – gold industry – creditable acquisition – whether applicant made acquisitions of precious metal or scrap gold – whether acquisitions made from intermediaries – whether acquisitions made through intermediaries acting as agents – form of tax invoices – whether second-hand goods rules apply – meaning of second-hand goods – form of records required for acquisitions of second-hand goods – whether excess GST passed on to another entity – shortcomings in evidence – whether Commissioner allowed to recover GST twice – recklessness as to operation of taxation laws – amendment of grounds of objection permitted – objection decision re assessment of net amount affirmed – objection decision re imposition of penalty affirmed – decision not to remit penalty affirmed
Legislation
Acts Interpretation Act 1901 (Cth), s 25C
A New Tax System (Goods and Services Tax) Act 1999 (Cth), ss 7-1, 9-5, 9-20, 9-40, 9-70, 9-75, 11-5, 11-10, 11-15, 11-20, 11-25, 17-5, 29-10, 29-70, 38-385, 40-100, 66-5, 66-10, 66-17, 142-5, 142-10, 142-15, 195-1
Taxation Administration Act 1953 (Cth), ss 14ZYA, 14ZZK, Sch 1 ss 284-75,284-90, 298-20, 382-5
Treasury Laws Amendment (GST Integrity) Act 2017 (Cth)
Cases
Avon Products Pty Ltd v Commissioner of Taxation [2006] HCA 29
Briginshaw v Briginshaw (1938) 60 CLR 336
BRK (Bris) Pty Ltd v Commissioner of Taxation (2001) 46 ATR 347
Commissioner of Taxation v Dalco (1990) 168 CLR 614
Garnac Grain Co Inc v HMF Faure & Fairclough Ltd [1968] AC 1130
International Harvester Company of Australia Pty Ltd v Carrigan’s Hazeldene Pastoral Co (1958) 100 CLR 644
McCormack v Federal Commissioner of Taxation (1979) 143 CLR 284
MZAIC V Minister for Immigration and Border Protection [2016] FCAFC 25
Rawson Finances Pty Ltd v Commissioner of Taxation [2013] FCAFC 26
Re Bayconnection Property Developments Pty Ltd and Commissioner of Taxation [2013] AATA 40
Re Eastwin Trade Pty Ltd and Commissioner of Taxation [2017] AATA 140
Robinson v Mollett (1875) LR 7 HL 802
South Sydney District Rugby League Football Club Ltd v News Ltd [2000] FCA 1541
Tehran Co Ltd v ST Belton (Tractors) Ltd [1968] 2 QB 53
Trautwein v Federal Commissioner of Taxation (No 1) (1936) 56 CLR 63
Warner v Hung (No 2) 2011 297 ALR 56
Secondary Materials
Explanatory Memorandum to the Tax Laws Amendment (2014 Measures No. 1) Bill 2014 Goods and Services Tax Ruling GSTR 2003/10: Goods and Services Tax: What is ‘precious metal’ for the purposes of GST?
REASONS FOR DECISION
Ms G Lazanas, Senior Member
28 May 2020
Introduction

The essential issue in this application is whether the applicant, Cash World Gold Buyers Pty Ltd (Cash World), made creditable acquisitions for the purposes of the A New Tax System (Goods and Services Tax) Act 1999 (Cth) (GST Act) and whether it can substantiate the claiming of input tax credits totalling $6,936,947.00 in respect of certain acquisitions during two quarterly tax periods ending 31 December 2014 and 31 March 2015 (Relevant Tax Periods). The acquisitions are millions of dollars’ worth of gold from three individuals, with the nature of the gold being a central issue for determination. Specifically, did Cash World make acquisitions of “precious metal” as defined in the GST Act or was the gold non-precious metal, that is, scrap gold?
The respondent (Commissioner) disallowed Cash World’s claim to the abovementioned input tax credits on the basis that it purchased “precious metal”, namely, investment grade gold bullion from the three individuals and, therefore, the supplies to it by those individuals were input taxed supplies, which did not give rise to input tax credit entitlements. The Commissioner alternatively contended that the three individuals acted as agents for Cash World in buying precious metal from bullion dealers and, therefore, did not make supplies to Cash World that were capable of giving rise to input tax credit entitlements. Alternatively, the Commissioner argued that even if taxable supplies of scrap gold were made by the three individuals, Cash World didn’t hold valid tax invoices substantiating the acquisitions and therefore was not entitled to claim input tax credits in the Relevant Tax Periods.
Cash World argued that its case is that of a typical trader buying and selling goods. It said it made taxable supplies and claimed input tax credits for its acquisitions of taxable supplies under Div 11 of the GST Act in the ordinary course of its trading activities. However, it also argued that if the supplies to it were not taxable supplies, it can alternatively claim input tax credits under Div 66 of the GST Act, which allows input tax credits to be claimed with respect to some acquisitions of second-hand goods. A third argument advanced by Cash World at the hearing was that it is entitled to claim input tax credits under Div 142 of the GST Act which generally allows a recipient to claim input tax credits in circumstances where there was not a taxable supply but where “excess GST” was nevertheless passed on to the recipient by the supplier. Cash World says the GST Act is designed to allow an entity in its position to claim input tax credits for acquisitions it made in relation to its taxable supplies. Furthermore, Cash World submitted any technical deficiencies in the invoices or records produced should not stand in the way of its entitlement to claim input tax credits.
The relevant supplies were made (or purportedly made) to Cash World by three individuals known as Messrs Brian Demas, Harry Walters and Neil Churchward. These individuals are collectively referred to as the Intermediaries. The Commissioner only sought to deny Cash World input tax credits for acquisitions of gold made from the Intermediaries.
I have decided Cash World is not entitled to claim the input tax credits for its acquisitions from the Intermediaries. While Cash World persuaded me that it made the acquisitions and the Intermediaries were not acting as its agents, it did not persuade me that the supplies made by the Intermediaries to it were all taxable supplies of scrap gold and that Cash World made creditable acquisitions pursuant to Div 11 of the GST Act. I did not accept Cash World’s evidence given by its principal, tax agent and employees to the effect that Cash World only ever acquired scrap gold from the Intermediaries as truthful. There were too many gaps, inconsistencies and vagaries in their evidence and there was no reliable independent evidence to support Cash World’s contentions. I have also decided that even if, and to the extent, the Intermediaries did make taxable supplies of scrap gold to Cash World, it did not hold valid tax invoices necessary to claim input tax credits. Nor was I persuaded this was an appropriate case for the Tribunal to treat the documents that Cash World had in its possession as valid tax invoices.
I have also decided Cash World is not entitled to claim input tax credits for its acquisitions of gold pursuant to Div 66, even to the extent that it made acquisitions of scrap gold which were not taxable supplies by the Intermediaries, because it did not hold appropriate records to substantiate its claims.
Cash World’s third argument that it was, in any event, entitled to claim input tax credits under Div 142 of the GST Act was misguided. This is because no GST was passed on by the Intermediaries to Cash World and, even if it were, Cash World knew, or could reasonably be expected to have known, that the Intermediaries were not remitting any GST to the Commissioner having regard to the pricing of the gold sold by the Intermediaries to Cash World.
It follows that Cash World failed to persuade me it was entitled to claim input tax credits under either Divs 11, 66 or 142 of the GST Act. Consequently, Cash World failed to discharge the burden of proving, on the balance of probabilities, that the assessments of net amount issued to it in respect of the Relevant Tax Periods were excessive and what the assessments should have been for the purposes of s 14ZZK(b)(i) of the Taxation Administration Act 1953 (Cth) (TAA).
There is also an issue as to whether the 50% penalties imposed by the Commissioner under the TAA (totalling $856,489) in respect of the tax shortfall for the quarterly tax period ending 31 December 2014 were properly imposed and, if so, whether the penalties should be remitted. I have concluded the penalties in respect of the quarterly tax period ended 31 December 2014 were appropriate and there is no basis to remit them, noting the Commissioner had already remitted the penalties for the quarterly tax period ended 31 March 2015.
I explain my reasons below after first setting out the numerous issues and alternative arguments of the parties before the Tribunal, as well as the relevant statutory provisions, the factual background and the evidence.
THE ISSUES
The ultimate issue for determination by the Tribunal is whether Cash World discharged its onus of proof by demonstrating that the assessments to it were excessive or otherwise incorrect and what the assessments should have been and, in doing so, proved that it was entitled to claim the input tax credits for the purposes of s 14ZZK(b)(i) of the TAA. The standard of proof that applies in taxation review proceedings is the balance of probabilities. This standard requires the affirmative of an allegation be made out to the Tribunal’s reasonable satisfaction, with the degree of satisfaction varying based on matters such as the gravity of the fact to be proved or the inherent unlikelihood of the occurrence of a given description: Briginshaw v Briginshaw (1938) 60 CLR 336 at 361-362 (per Dixon J). The manner in which a taxpayer can discharge the burden of proof varies with the circumstances: Commissioner of Taxation v Dalco (1990) 168 CLR 614 at 624 per Brennan J.
If the Tribunal cannot be satisfied by Cash World that the assessments issued by the Commissioner to it were excessive, the Tribunal must dismiss the application for review “irrespective of the Tribunal being satisfied or not satisfied that the facts as found by the Tribunal give rise to the amount of the liability in the impugned decision”: Re Eastwin Trade Pty Ltd and Commissioner of Taxation [2017] AATA 140 at [79] (per SM Taylor SC) citing Rawson Finances Pty Ltd v Commissioner of Taxation [2013] FCAFC 26; 133 ALD 39 at [111] (per Jagot J). This is because s 14ZZK(b)(i) gives rise to what has been described as “a rebuttable presumption of law that an assessment is not excessive”: McCormack v Federal Commissioner of Taxation (1979) 143 CLR 284 at 314 (per Jacobs J). That is, the assessments made by the Commissioner are “prima facie right” and “remain right” until the taxpayer shows they are “wrong”: Trautwein v Federal Commissioner of Taxation (No 1) (1936) 56 CLR 63 at 88 (per Latham CJ). To persuade the Tribunal that the assessments are excessive or otherwise incorrect, Cash World must identify a coherent factual and legal position and persuade the Tribunal that that position is correct (see Warner v Hung (No 2) (2011) 297 ALR 56 at 69). Against that background, which is apposite to this proceeding, I now outline the substantive issues in dispute.
Issue 1 – Did Cash World make acquisitions of scrap gold from the Intermediaries?
The first issue is whether Cash World made acquisitions of scrap gold from the Intermediaries (as claimed by Cash World) or whether it made acquisitions of gold which was “precious metal”, as defined in the GST Act.
The Commissioner argued that some or all the alleged acquisitions of scrap gold that Cash World is recorded as having made from the Intermediaries were a “sham”, in the sense that the invoices were created to give the appearance of sales of scrap gold when, in fact, no or fewer acquisitions of scrap gold were made. In particular, the Commissioner argued that Cash World made acquisitions of investment grade gold bullion, that is, “precious metal”, as defined in the GST Act, from the Intermediaries. Alternatively, the Commissioner argued Cash World made acquisitions of “precious metal” from the bullion dealers through the Intermediaries who acted as its agents.
It is, therefore, necessary to consider the nature of the gold acquired by Cash World and whether it was “precious metal” as defined in the GST Act or “non-precious metal” or “scrap gold”, being terms used in this decision to refer to gold that does not fit into the definition of “precious metal”, and which include blobs of gold and defaced or torched gold bullion. Additionally, it is necessary to consider the capacity in which the Intermediaries purchased the gold from the bullion dealers, namely, whether they acted in their own right or as agents for Cash World.
Issue 2 – Did Cash World make creditable acquisitions of gold in respect of which it is entitled to claim input tax credits under Div 11 of the GST Act?
The second issue is concerned with Cash World’s entitlement to claim input tax credits under Div 11 of the GST Act. It involves analysis of several different aspects, including if Cash World did make acquisitions of scrap gold from the Intermediaries, whether the acquisitions were creditable acquisitions under s 11-5 of the GST Act. Specifically, to the extent Cash World made acquisitions of scrap gold from the Intermediaries, were the supplies made by the Intermediaries taxable?
The Commissioner argued the Intermediaries did not make taxable supplies of scrap gold to Cash World as they were not required to be registered for GST. According to the Commissioner, the Intermediaries were not “carrying on” an “enterprise”, as defined in the GST Act, because their activities were not carried on with a reasonable expectation of profit or gain.
A related and important issue is, to the extent any of the acquisitions were creditable acquisitions, did Cash World hold valid tax invoices so as to claim and attribute the input tax credits to the Relevant Tax Periods having regard to the attribution and tax invoice requirements set out in ss 29-10(1) and (3) and s 29-70(1) of the GST Act?
Issue 3 – Did Cash World make creditable acquisitions of gold in respect of which it is entitled to claim input tax credits under Div 66 of the GST Act?
The third issue concerns the application of Div 66 of the GST Act, which sets out the second-hand goods rules. If the supplies by the Intermediaries to Cash World were not taxable supplies, did Cash World make creditable acquisitions in accordance with Div 66 of the GST Act? The application of Div 66 necessitates an analysis of the former definition of “second-hand goods” in s 195-1 of the GST Act before amendments were made by the Treasury Laws Amendment (GST Integrity) Act 2017 (Cth).
Cash World only relied on this ground of objection with respect to its acquisitions from Mr Walters on the basis that he was not actually registered for GST during the Relevant Tax Periods (although the Commissioner later registered Mr Walters for GST with retrospective effect from 1 October 2014). However, Cash World’s position changed because the Commissioner submitted, as one of his alternative arguments, that Mr Demas and Mr Churchward did not make taxable supplies because the supplies were not made by them in the course of carrying on an enterprise. Consequently, Cash World sought to additionally rely on Div 66 of the GST Act with respect to acquisitions from Mr Demas and Mr Churchward, and to this end sought the Tribunal’s permission to amend its grounds of objection.
Additionally, it is necessary to review whether the ‘Customer Statements’ with respect to a number of transactions involving purchases made by Cash World from the Intermediaries comply with the special requirements set out in s 66-17(2) of the GST Act for Cash World to be entitled to claim input tax credits pursuant to Div 66.
Issue 4 – Does s 142-10 of the GST Act apply?
The fourth issue is concerned with the operation of Div 142 of the GST Act. Cash World argued that even if the supplies of gold made by the Intermediaries to Cash World were not taxable supplies for whatever reason (including if the Intermediaries were not carrying on an enterprise or because they were supplying “precious metal” to Cash World), Div 142 operates so that the “excess GST” passed on to Cash World is taken to have always been payable and on a taxable supply: s 142-10. The Commissioner argued there was no “excess GST” and, in any event, s. 142-15(5) applies so that Cash World is not entitled to claim the input tax credits if and while Cash World knew, or could reasonably be expected to have known, that the Intermediaries have not paid the excess GST to the Commissioner.
Cash World’s reliance on Div 142 was raised for the first time at the hearing, which requires the Tribunal to consider whether it should additionally permit Cash World to amend its grounds of objection on account of Div 142 of the GST Act.
Issue 5 – The Penalties Issues
The fifth issue is concerned with the penalties imposed under the TAA. The issue is whether Cash World is liable to administrative penalties at the rate of 50% based on recklessness, totalling $856,489 under s 284-75(1) of Schedule 1 to the TAA, for making false and misleading statements to the Commissioner in respect of the quarterly tax period ended 31 December 2014. If so, should the penalties be remitted?
THE RELEVANT STATUTORY PROVISIONS
It is necessary to first set out some “central provisions” of the GST Act followed by more specific provisions relevant to this proceeding. Some of the legislative provisions set out below have changed since the Relevant Tax Periods and are, accordingly, set out in their form as applicable at the start of the Relevant Tax Periods, namely, 1 September 2014.
Division 7 of the GST Act and the central provisions
The central provisions contained in Div 7 are, relevantly, as follows:
7‑1 GST and input tax credits
(1) GST is payable on *taxable supplies and *taxable importations.
(2) Entitlements to input tax credits arise on *creditable acquisitions and *creditable importations.
For taxable supplies and creditable acquisitions, see Part 2‑2.
For taxable importations and creditable importations, see Part 2‑3.
7‑5 Net amounts
Amounts of GST and amounts of input tax credits are set off against each other to produce a *net amount for a tax period (which may be altered to take account of *adjustments).
For net amounts (including adjustments to net amounts), see Part 2‑4.
As noted above, s 7-1(2) of the GST Act relevantly states that entitlements to input tax credits arise upon the making of “creditable acquisitions”. “Input tax credit” is relevantly defined in s 195-1 (the “Dictionary” of the GST Act) to mean an entitlement arising under s 11-20.
Division 11 of the GST Act and creditable acquisitions
Section 11-20 of the GST Act provides that “you are entitled to the input tax credit for any *creditable acquisition that you make”. So far as relevant, s 11-25 explains that the amount of the input tax for a “creditable acquisition” is an amount equal to the GST payable on the supply of the thing acquired.
Section 11-5 provides that you make a “creditable acquisition” if:
(a)       you acquire anything solely or partly for a *creditable purpose; and
(b)       the supply of the thing to you is a *taxable supply; and
(c)       you provide, or are liable to provide, *consideration for the supply; and
(d)       you are *registered, or *required to be registered.
An acquisition is “any form of acquisition whatsoever”: s 11-10(1).

So far as relevant, s 11-15 deals with “creditable purpose”, as follows:
(1)      You acquire a thing for a creditable purpose to the extent that you acquire it in *carrying on your *enterprise.
(2)       However, you do not acquire the thing for a creditable purpose to the extent that:
(a)       the acquisition relates to making supplies that would be *input taxed; or
…
“Input taxed”, according to the definition in s 195-1, has the meaning given by s 9-30(2) and Div 40 of the GST Act. So far as relevant, s 9-30(2) states that a supply is input taxed if it is input taxed under Div 40 of the GST Act, which specifies the supplies that are input taxed. One of the kinds of supplies that is input taxed under s 40-100 is the supply of “precious metal”, as explained below.
If a supply is input taxed, then no GST is payable on the supply and there is no entitlement for the supplier to an input tax credit for anything acquired or imported to make the supply: s 40-1. Also, where the supply is input taxed and, consequently, no GST is charged on the supply, the recipient (or purchaser) of the supply is generally not entitled to claim any input tax credits: s 11-5(b). That general rule is subject to the application of special rules, one of which is Div 66 relating to second-hand goods, as explained further below.
The GST treatment of precious metal
Sections 38-385 and 40-100 of the GST Act are concerned with the GST treatment of “precious metal”. Only s 40-100 is relevant in this proceeding because s 38-385 broadly applies to certain supplies made by a “refiner of precious metal” as defined in the GST Act, which is not relevant to this proceeding.
Section 40-100 states as follows in relation to “precious metal”:
40‑100 Precious metals
A supply of *precious metal is input taxed.
Note: If the supply is the first supply of precious metal after refinement, the supply is GST‑free under section 38‑385.
Section 195-1 of the GST Act defines “precious metal” to mean:
(a)       gold (in an investment form) of at least 99.5% fineness; or
(b)       silver (in an investment form) of at least 99.9% fineness; or
(c)       platinum (in an investment form) of at least 99% fineness; or
(d)       any other substance (in an investment form) specified in the regulations of a particular fineness specified in the regulations.
It follows that gold (with which this proceeding is concerned) will only be “precious metal” for the purposes of the GST Act if it is in the requisite form (namely, investment form) and is of the requisite metallic purity (at least 99.5% fineness). The phrase “investment form” is not defined by the GST Act. In the absence of a statutory definition, the Commissioner articulated a definition in Goods and Services Tax Ruling GSTR 2003/10: Goods and Services Tax: What is ‘precious metal’ for the purposes of GST? at [29], as follows:
for gold, silver or platinum to be in an investment form for the purposes of the GST Act, it must be in a form that is
·is capable of being traded on the international bullion market (that is, it must be a bar, wafer or coin);
·bears a mark or characteristic accepted as identifying and guaranteeing its fineness and quality; and
·is usually traded at a price determined by reference to the spot price of the metal it contains.
It was common ground that the above view as to the meaning of “investment form” is generally accepted. That is, Cash World and the Commissioner accepted that absent a recognised mark and indication of fineness, a gold bar will not be precious metal for the purposes of the GST Act, irrespective of its degree of metallic purity.
The GST treatment of scrap gold and the attribution rules
A supply of gold that does not meet the definition of “precious metal” (which, as noted above, is referred to as either non-precious metal or scrap gold throughout these reasons) will be a taxable supply if the provisions of s 9-5 are satisfied.
“Taxable supply” is defined in s 9-5 of the GST Act as follows:
You make a taxable supply if:
(a)         you make the supply for *consideration; and
(b)         the supply is made in the course or furtherance of an *enterprise that you *carry on; and
(c)         the supply is *connected with Australia; and
(d)         you are *registered, or *required to be registered.
However, the supply is not a *taxable supply to the extent that it is *GST‑free or *input taxed.
Liability for GST arises on “taxable supplies”. Section 9-40 of the GST Act provides that “[y]ou must pay the GST payable on any *taxable supply that you make”. That is, the supplier is liable to pay the GST.
The amount of GST payable on a taxable supply is set out in ss 9-70 and 9-75 of the GST Act. Relevantly, those sections provide, as follows:
9‑70 The amount of GST on taxable supplies
The amount of GST on a *taxable supply is 10% of the *value of the taxable supply.
9‑75 The value of taxable supplies
(1)       The value of a *taxable supply is as follows:
where:
price is the sum of:
(a)       so far as the *consideration for the supply is consideration expressed as an amount of *money—the amount (without any discount for the amount of GST (if any) payable on the supply); and
(b)       so far as the consideration is not consideration expressed as an amount of money—the *GST inclusive market value of that consideration.
Example:           You make a taxable supply by selling a car for $22,000 in the course of carrying on an enterprise.
The value of the supply is:
The GST on the supply is therefore $2,000 (i.e. 10% of $20,000).
It follows from the above legislative provisions that a supplier who makes a taxable supply of scrap gold has a liability to pay GST equal to 1/11^th of the price. Also, the recipient of the taxable supply is entitled to claim input tax credits equal to 1/11^th of the price subject to the recipient making a “creditable acquisition” and holding a valid tax invoice. The requirement to hold a tax invoice is set out in the attribution rules in the GST Act.
Broadly, the attribution rules contained in Div 29 of the GST Act refer to the tax periods to which an entity attributes the GST payable on its taxable supplies and the input tax credits on its creditable acquisitions. Section 29-10(2) relevantly states in relation to attributing input tax credits for creditable acquisitions for a taxpayer that accounts on a cash basis, which was Cash World’s basis of accounting, the following:
29‑10 Attributing the input tax credits for your creditable acquisitions
(2)       However, if you *account on a cash basis, then:
(a)         if, in a tax period, you provide all of the *consideration for a *creditable acquisition—the input tax credit for the acquisition is attributable to that tax period; or
(b)         if, in a tax period, you provide part of the consideration—the input tax credit for the acquisition is attributable to that tax period, but only to the extent that you provided the consideration in that tax period; or
(c)         if, in a tax period, none of the consideration is provided—none of the input tax credit for the acquisition is attributable to that tax period.
There are additional rules regarding the attribution of input tax credits in s 29-10(3), which are important, as follows:
(3)       If you do not hold a *tax invoice for a *creditable acquisition when you give to the Commissioner a *GST return for the tax period to which the input tax credit (or any part of the input tax credit) on the acquisition would otherwise be attributable:
(a)         the input tax credit (including any part of the input tax credit) is not attributable to that tax period; and
(b)         the input tax credit (or part) is attributable to the first tax period for which you give to the Commissioner a GST return at a time when you hold that tax invoice.
However, this subsection does not apply in circumstances of a kind determined in writing by the Commissioner to be circumstances in which the requirement for a tax invoice does not apply.
For the giving of GST returns to the Commissioner, see Division 31.
“Tax invoice” is defined in s 195-1 to relevantly have the meaning given by s 29-70(1) and to include a document that the Commissioner treats as a tax invoice under s 29-70(1B). So far as relevant, s 29-70 of the GST Act states as follows:
(1)       A tax invoice is a document that complies with the following requirements:
(a)         it is issued by the supplier of the supply or supplies to which the document relates, unless it is a *recipient created tax invoice (in which case it is issued by the *recipient);
(b)         it is in the *approved form;
(c)         it contains enough information to enable the following to be clearly ascertained:
(i) the supplier’s identity and the supplier’s *ABN;
(ii) if the total *price of the supply or supplies is at least $1,000 or such higher amount as the regulations specify, or if the document was issued by the recipient—the recipient’s identity or the recipient’s ABN;
(iii) what is supplied, including the quantity (if applicable) and the price of what is supplied;
(iv) the extent to which each supply to which the document relates is a *taxable supply;
(v) the date the document is issued;
(vi) the amount of GST (if any) payable in relation to each supply to which the document relates;
(vii)          if the document was issued by the recipient and GST is payable in relation to any supply—that the GST is payable by the supplier;
(viii)          such other matters as the regulations specify;
(d)         it can be clearly ascertained from the document that the document was intended to be a tax invoice or, if it was issued by the recipient, a recipient created tax invoice.
Note:        If the recipient is a member of a GST group, section 48‑57 may relax the requirements relating to the recipient’s identity or the recipient’s ABN.
…
(1B)     However, the Commissioner may treat as a *tax invoice a particular document that would not, apart from this subsection, be a tax invoice.
In summary, Cash World’s entitlement to claim input tax credits depends, in the first instance, on whether it was acquiring taxable supplies of scrap gold from the Intermediaries or whether it was acquiring input taxed supplies of “precious metal”, as defined. This is because, as noted above in the definition of “creditable acquisition”, a taxpayer can only claim input tax credits on acquisitions if the supplies to it were taxable supplies: s 11-5(b). In order to claim input tax credits, Cash World also needed to hold tax invoices or documents that the Commissioner (or the Tribunal standing in the shoes of the Commissioner) is prepared to treat as tax invoices under s 29-70(1B): s 29-10(3).
Div 66 and creditable acquisitions of second-hand goods
There are special rules in Div 66 which allow a taxpayer to claim input tax credits for acquisitions of “second-hand goods” as defined in s 195-1 of the GST Act, notwithstanding that the supply of the goods to the recipient is not a taxable supply. Pursuant to s 45-5 of the GST Act, these special rules generally override the provisions of Divs 11 and 29 to the extent of any inconsistency and, therefore, must also be considered in addition to the “central provisions”.
Cash World argued that if the Intermediaries were not making taxable supplies to it for any reason, namely, if the Commissioner was right that the Intermediaries were not making taxable supplies because the Intermediaries were not carrying on an enterprise, then Cash World was entitled to claim input tax credits on its acquisitions of scrap gold from the Intermediaries pursuant to s 66-5(1). This was on the basis that Cash World was engaged in acquiring and selling “second-hand goods” in the ordinary course of its business.
Section 66-5 of the GST Act relevantly provides:
(1)       If you acquire *second-hand goods for the purposes of sale or exchange (but not for manufacture) in the ordinary course of *business, the fact that the supply of the goods to you is not a*taxable supply does not stop the acquisition being a*creditable acquisition.
(2)       However, this section does not apply, and is taken never to have applied, to the acquisition if:
(a)         the supply of the goods to you was a *taxable supply, or was*GST-free; or
(b)         you *imported the goods; or
(c)         the supply of the goods to you was a supply by way of hire; or
(d)         Subdivision 66-B applies to the acquisition; or
(e)         you make a supply of the goods that is not a taxable supply.
(3)       This section has effect despite section 11-5 (which is about what is a creditable acquisition).
Section 66-10 states that the amount of the input tax credit for a creditable acquisition of second-hand goods for which the consideration is more than $300 is an amount equal to 1/11th of the consideration provided for the acquisition. However, if that amount is more than the amount of the GST payable on a taxable supply of the goods subsequently made, then the input tax credit is equal to the amount of GST on that subsequent taxable supply.
“Second-hand goods” was defined in s 195-1 of the GST Act, during the Relevant Tax Periods, to relevantly exclude the following:[1]
(a) *precious metal; or
(b) goods to the extent that they consist of gold, silver, platinum, or any other substance which, if it were of the required fineness, would be precious metal; or
….
[1] Amendments were made by the Treasury Laws Amendment (GST Integrity) Act 2017 (Cth) to the GST treatment of certain precious metal goods, including to the definition of “second-hand goods” in s 195-1, however, as those amended provisions apply to goods acquired or imported on or after 1 April 2017, they are not relevant to this proceeding.
One of the issues which emerged with respect to the application of Div 66 is the proper interpretation of paragraph (b) in the definition of “second-hand goods” and whether it operated to exclude goods that relevantly consisted of gold of the requisite 99.5% fineness, irrespective of the form of the gold. That is, is scrap gold which has a fineness of at least 99.5% excluded under paragraph (b) of the definition of “second-hand goods”?
Section 66-17 of the GST Act, which prescribes record-keeping requirements for acquisitions of second-hand goods, is also important. It places the obligation to prepare records on the recipient claiming the input tax credit and relevantly states, as follows:
(1)       If you make a *creditable acquisition of second-hand goods and the supply of the goods to you was not a *taxable supply:
(a)         subsection 29-10(3) applies to the acquisition as if references to a*tax invoice were references to a record you prepared that complies with this section; and
…
(2)      To comply with this section, the record must:
(a)         set out the name and address of the entity that supplied the goods to you; and
(b)         describe the goods (including their quantity); and
(c)         set out the date of, and the *consideration for, the acquisition.
…
(3)       This section has effect despite section 29-10 (which is about attributing the input tax credits for creditable acquisitions) and section 29-20 (which is about attributing decreasing adjustments).
Div 142 and Excess GST
Division 142 of the GST Act broadly deals with “excess GST”. Excess GST is an amount of GST that has been taken into account in an entity’s assessed net amount and is in excess of what was payable by the entity to the Commissioner. Division 142 operates where excess GST has been passed on to recipients of supplies.
Section 142-5(1) of the GST Act states, as follows:
(1)       This Subdivision applies if, after disregarding any amounts covered by subsection (2), your *assessed net amount for a tax period takes into account an amount of GST exceeding that which is payable.
Note:     This Subdivision applies whether or not you have paid, or been refunded, the assessed net amount.
Example:           Sunny Co mistakenly reports a negative net amount of $4,000 made up of GST of $10,000 less input tax credits of $14,000. In fact, Sunny Co’s GST should have been $8,000 making its negative net amount $6,000. Sunny Co has excess GST of $2,000.
Section 195-1 of the GST Act defines “assessed net amount” as follows:
“for a *tax period, means the *net amount *assessed for the tax period”
Relevantly, “net amount” is defined in s 195-1 to have the meaning given in s 17-5 of the GST Act. Section 17-5(1) prescribes the net amount formula as being relevantly “GST – input tax credits”. This is where “GST” is the sum of all of the GST for which you are liable on the taxable supplies that are attributable to the tax period and “input tax credits” is, relevantly, the sum of all of the input tax credits to which you are entitled for the creditable acquisitions that are attributable to the tax period. Curiously, there is no definition of “assessed” in the GST Act, notwithstanding the presence of an asterisk before that word which is used to identify defined terms in the GST Act: s 3-1. In the absence of a definition, I have proceeded on the basis that the net amount “assessed” can be the net amount the taxpayer self-assesses and reports in its BAS for the tax period or it can be the net amount the Commissioner assesses, including by way of issuing an amended assessment for the tax period. The overstated GST is termed “excess GST” as per s 142-10.
Section 142-10 is the key operative provision and states, as follows:
142‑10 Refunding the excess GST
For the purposes of each *taxation law, so much of the excess from subsection 142‑5(1) (the excess GST) as you have *passed on to another entity is taken to have always been:
(a)         payable; and
(b)         on a *taxable supply;
until you reimburse the other entity for the passed‑on GST.
Note 1:   If you reimburse the passed‑on GST so that this section ceases to apply there will be an adjustment event under paragraph 19‑10(1)(b) or (c). You will have a decreasing adjustment (see section 19‑55) and the other entity may have an increasing adjustment (see section 19‑80).
Note 2: Any excess GST you have not passed on will be refunded as described in section 155‑75 in Schedule 1 to the Taxation Administration Act 1953.
Note 3:   While this section applies, paragraph 11‑5(b) (about taxable supplies) is satisfied for the corresponding acquisition by the other entity.
So far as relevant, s 142-10 only applies where an amount of GST has been “passed on” and it creates an input tax credit entitlement for eligible recipients under the GST Act by treating the excess GST as always having been payable and always on a taxable supply.
Section 195-1 states “passed on” has a meaning affected by s 142-25. Section 142-25 states as follows:
142‑25 Working out if GST has been passed on
(1)       Some or all of an amount of GST may have been passed on to another entity even if:
(a)       a *tax invoice is not issued to or by that other entity; or
(b)       a tax invoice issued to or by that other entity relates to that GST, but does not contain enough information to enable that GST to be clearly ascertained.
(2)       If:
(a)       you issue a *tax invoice to another entity, or another entity issues a *recipient created tax invoice to you; and
(b)       the invoice contains enough information to enable some or all of an amount of GST to be clearly ascertained; and
(c)       in a case where you must pay the *assessed net amount for a tax period to which the invoice relates—you have paid that assessed net amount to the Commissioner;
the invoice is prima facie evidence of that part of that GST having *passed on to that other entity.
In the Explanatory Memorandum to the Tax Laws Amendment (2014 Measures No. 1) Bill 2014 that became the Act which inserted Div 142 into the GST Act, the following statements are made about “passing on” which are relevant to the consideration of Div 142:
(a)“A tax invoice issued to or by another entity, that contains enough information to allow the amount of GST payable in relation to the supply to be clearly ascertained, is prima facie evidence of the excess GST having been passed on (although in cases where the taxpayer must pay an assessed net amount, the invoice is only prima facie evident if the amount has been paid). This reflects that tax invoices are issued for taxable supplies recognising that suppliers will have a liability for GST and would in most circumstances pass the cost of GST onto their customers”: paragraph 2.68.
(b)“GST may have been passed on even though a tax invoice has not been issued, or does not specifically or separately identify the GST component or is not a valid tax invoice for the purposes of the GST Act”: paragraph 2.69.
(c)“For example, Information contained in a document purporting to be a tax invoice, but that does not:
(i)satisfy the requirements under subsection 29-70(1): or
(ii)result in the Commissioner treating the document as a tax invoice under subsection 29-70(1B);
may be sufficient to demonstrate that the excess GST has been included in the price of a supply and therefore passed on”: paragraph 2.70
(d)“Some further guidance on the question of ‘passing-on’ can be obtained from the decision of the High Court in Avon [Avon Products Pty Ltd v Commissioner of Taxation [2006] HCA 29] [where] the High Court noted that a central feature of the sales tax regime was that ‘the economic burden of the impost is generally not intended to be borne by the person liable to remit it; it is passed on.’”: paragraph 2.73.
(e)“The GST regime is similar to the former sales tax regime in that the entity liable to remit the tax is not intended to be the entity that actually bears the cost of the tax. As such, a number of judicial observations can be readily adapted to a GST context:
…
· GST will be passed on in the usual course of doing business:
· it is inherent in an indirect tax system that GST will be passed on; …”: paragraph 2.74.
(f)“Whether an indirect tax has been passed on can be a relatively complex inquiry. This is because prices may be set with reference to a wide range of factors (including considerations of … competitive advantage, operational cash flow and customer goodwill). However, the seller’s pricing policy and practice are the starting point of that inquiry.”: paragraph 2.75.

Importantly, the Commissioner may trigger the application of Div 142 by causing an amount of “excess GST” to be included in a taxpayer’s “assessed net amount” by issuing an assessment even though the GST hasn’t actually been paid to the Commissioner by the supplier. This appears to be acknowledged in paragraph 2.53 and Example 2.11 in the Explanatory Memorandum to the Tax Laws Amendment (2014 Measures No 1) Bill 2014, as set out below:
Amended assessments
2.53 Circumstances may arise where an assessed net amount is amended (whether on application by the taxpayer, or following an audit by the Commissioner) to include an amount of GST not originally treated as payable. If the amendment is incorrect, but the taxpayer has not passed on the excess GST, then this measure allows the taxpayer to claim a refund of the excess. This means that if it is later determined that GST was not payable on that supply, the taxpayer's assessed net amount could be further amended to reflect this outcome.
Example 2.11: Amended assessment and GST not passed on
Jenny treats a particular supply as GST-free and this is reflected in the price she charges customers. Her assessed net amount for the tax period reflects the GST-free treatment of that supply (she does not report any GST for that supply).
Later, she is audited by the Commissioner, who determines that the supply she treated as GST-free was a taxable supply. The Commissioner amends her assessment for that tax period (first amended assessment).
Jenny objects to the amended assessment on the basis that she considers that the supply is not taxable.
Subsequently, the Commissioner allows her objection in full. However, in giving effect to the favourable decision, the Commissioner must consider the application of these amendments.
The amendments apply as Jenny’s assessed net amount for the tax period (the first amended assessment) takes into account an amount of GST exceeding that which is payable. In applying the amendments, it does not matter how much, if any, of the assessed net amount Jenny has actually paid.
As Jenny is able to demonstrate that the price she charged does not include GST, the Commissioner accepts that she has not passed on the GST and that the amendments do not apply. Accordingly the Commissioner further amends Jenny’s assessed net amount (second amended assessment) to reflect the favourable objection decision.
However, the position in relation to the recipient’s entitlement to claim input tax credits is modified by s 142-15(5), which states:
(5) Section 142‑10 does not apply for the purposes of applying a *taxation law to the other entity if, and while, that other entity knows, or could reasonably be expected to have known, that you have not paid the excess GST to the Commissioner.
Note: Section 142‑10 still applies for the purposes of applying taxation laws to you.
Plainly, the purpose of the abovementioned provision is the prevention of contrived arrangements where, for example, a supplier purports to make taxable supplies but does not remit any GST to the Commissioner but, nonetheless, the effect of s 142-10 would otherwise be to treat the excess GST as payable on a taxable supply and to give rise to an input tax credit for the recipient.
Other statutory provisions that are relevant to the determination of various other issues raised in this proceeding, including in relation to the imposition and remission of administrative penalties, are referred to below.
THE FACTUAL BACKGROUND
The following findings are based on the respective Statements of Facts Issues and Contentions (SFIC) filed by Cash World and the Commissioner, including the Further Amended SFIC filed by Cash World on 13 June 2018 as well as the evidence adduced by Cash World. As noted above, the parties also filed at the hearing a Statement of Agreed Facts setting out information about the GST affairs of the Intermediaries. As will become clear, that information is particularly relevant to Cash World’s contention that it was entitled to claim input tax credits under Div 142 of the GST Act on the basis that there was “excess GST”. The information is also relevant to a complaint by Cash World that the Commissioner had raised cumulative assessments against the Intermediaries and Cash World which sought double recovery of the GST.
Cash World and its business
Cash World is a company that was incorporated on 4 July 2012 with paid up share capital of $2.00. It was registered for GST on the same day as it was incorporated and accounts for GST on a cash basis. Cash World said it had not expected its turnover to exceed $2 million which is why it adopted cash basis accounting and reporting. It lodged its Business Activity Statements (BASs) in respect of quarterly tax periods.
At all relevant times, Mr Talal Barakat was the sole director, shareholder and company secretary of Cash World. Mr Barakat holds a second-hand dealer’s licence under the Pawnbrokers and Second-hand Dealers Act 1996 (NSW). Prior to the incorporation of Cash World in July 2012, Mr Barakat traded as a sole trader since 1995 and, therefore, had considerable industry experience buying and selling gold and jewellery.
Cash World engaged a registered BAS agent in early July 2012 to prepare and lodge its BASs. From 9 September 2014, the registered office of Cash World was the premises of its accountant, Mr Bruce Welch of Genii Business Services Pty Ltd (Genii).
Cash World carried on a jewellery and watch retail business. During the Relevant Tax Periods, Cash World’s shop was located in the Sydney central business district. Cash World specialised in gold jewellery but also bought and sold watches, gold and silver bullion, gold nuggets and coins, scrap gold, diamonds, gemstones, platinum and silver jewellery.[2] When customers wanted repairs or alterations to jewellery, they were referred to jewellers. Mr Barakat said he often referred customers to Mr Gerry Demirel, a jeweller in the Dymocks building. He also said he had never spoken to Mr Demirel about melting gold.[3] The involvement of Mr Demirel is further addressed below.
[2] Exhibit A2, Statement of Talal Barakat dated 8 August 2017, paragraph [16].
[3] Exhibit A2, paragraph [17].
Cash World’s shop was busy and there were usually two employed staff besides Mr Barakat working in the shop which traded between 9am to 5pm on Mondays to Fridays and between 9am to 2pm on Saturdays.
Cash World’s gold transactions with the Intermediaries
The relevant background to the GST dispute and, specifically, the acquisitions of gold by Cash World from the Intermediaries is as follows.
On 24 October 2014, Mr Barakat along with his cousin, Mr Ahmed Ibrahim, travelled to Queensland to meet Mr Ali Masri, being Mr Barakat’s uncle. The purpose of the meeting was for Mr Masri to introduce Mr Barakat to Mr Demas (one of the Intermediaries) and to discuss gold transactions. Mr Demas was a former family friend of Mr Barakat. Mr Barakat told Mr Demas at the meeting that he would be prepared to pay 6.5% above spot price for any gold Mr Demas could acquire and sell to Cash World and Mr Barakat also promised to pay his cousin, Mr Masri, a commission for introducing Mr Demas to Cash World. According to Mr Barakat, there was no mention of GST or the form of the gold to be acquired, or from whom the gold was to be acquired, at that meeting. Mr Ibrahim, who also gave evidence, corroborated that version of events.
From 28 October 2014, Mr Demas and Mr Walters (the second Intermediary), began to separately supply significant quantities of gold to Cash World, and both later relocated from Queensland to Sydney to supply significant quantities of gold to Cash World, often twice a day. Mr Demas and Mr Walters were later joined by Mr Churchward (the third Intermediary), who also relocated to Sydney and began to supply gold to Cash World from 24 February 2015. I will deal with the sources and the form of the gold supplied further below.
Cash World initially paid Mr Demas, Mr Walters and Mr Churchward 6.5% above the spot price for the gold supplied by each of them; later, the percentage paid was reduced by Cash World to 5.5% above the spot price. In respect of a couple of initial transactions, Cash World issued a document titled ‘Customer Statement’ for the purchase of the gold from Mr Demas but later, Mr Demas, Mr Walters and Mr Churchward, each issued to Cash World documents headed ‘TAX INVOICE*/STATEMENT*’ in relation to each transaction. I will have more to say about these documents below as they are the principal documents in issue.
Cash World claimed input tax credits totalling $6,936,947.00 in relation to the gold it acquired from Mr Demas, Mr Walters and Mr Churchward in the Relevant Tax Periods. It did so on the basis that all its acquisitions of gold were “creditable acquisitions” of scrap gold. That is, Cash World claims the Intermediaries made taxable supplies of scrap gold to Cash World and that Cash World paid the Intermediaries GST in the purchase price for the gold acquired under ss 9-70 and 9-75 of the GST Act and it was, therefore, entitled to claim corresponding input tax credits.
Mr Barakat said he made sure to ask Mr Demas and Mr Churchward if they were registered for GST and they confirmed to him they were. At the time of preparing his witness statement as at 8 August 2017, Mr Barakat searched the Australian Business Register ‘ABN Lookup’ website and confirmed their GST registrations were still active. He said he was aware that Mr Walters was not registered for GST during the Relevant Tax Periods and, therefore, the purchases from Mr Walters were made under the second-hand goods provisions.[4]
[4] Exhibit A2, paragraphs [33]-[36].
Mr Barakat stated every gold item brought to the shop for sale would be tested by him or his staff using a XRF machine, before purchasing it.[5] A XRF machine is a handheld X-ray machine which indicates the purity of gold in the subject item. The XRF machine used by Cash World is only capable of testing gold to a depth of approximately 1mm. He said, “if a customer came into the shop with a large piece or “blob” of scrap gold, we would cut the gold in half to create a cross-section in order to examine and test the center. This would ensure that the gold percentage reading was accurate.”[6] He said he would then check the spot price on Kitco ( which gives spot gold prices. For a general member of the public, he said he would typically offer the seller 95% of the spot price plus 10% GST.[7] Mr Barakat did not explain why he would pay members of the public amounts on account of GST in circumstances where they were unregistered for GST, nor did he provide evidence that he in fact typically offered to pay that price. I reject the suggestion that Cash World was paying approximately 105% of the spot price for scrap gold sold by general members of the public. Mr Barakat’s evidence about testing every gold item with a XRF machine and the suggestion that they were regularly cutting large pieces or blobs of scrap gold is also not accepted as it conflicts with the evidence of others as to Cash World’s practices, as described below.
[5] Exhibit A2, paragraph [20].
[6] Exhibit A2, paragraph [21].
[7] Exhibit A2, paragraph [22].
Mr Barakat said he sold gold that he purchased to entities including AMC Investments (Aust) Pty Ltd (AMC) and Lambert & Cells Pty Ltd. He said he had been approached by Mr Adam Cartmer, a director of AMC, in or around late 2013 and started selling gold to AMC around January 2014. It was Mr Barakat’s understanding that Mr Cartmer and AMC were already purchasing gold from various other merchants in Sydney and sought to engage Cash World “as a client”, that is, as a supplier to source gold to sell to AMC. AMC, in turn, supplied gold to an entity known as ABC Refinery Pty Ltd.
Almost all the gold Cash World acquired from the Intermediaries was sold by it to AMC.

Mr Barakat stated this was because “AMC had the capacity to accept that quantity [of] gold and, further Mr Cartmer had indicated that he preferred the form of gold that was being purchased as it led to less waste for the purchaser. However, [he – Mr Barakat] never asked or required [Mr Demas, Mr Churchward or Mr Walters] to obtain gold in a certain form it was just happened that this was the type of gold they would bring to me” (sic).[8]
[8] Exhibit A2, paragraph [28].
The way Cash World transacted with its customers when it was selling gold was straightforward and not controversial. When Mr Barakat received a telephone call from the Intermediaries that they were on their way to Cash World’s shop with gold, Mr Barakat would then call AMC’s representatives to be ready to attend Cash World’s shop to collect the gold. When AMC acquired the gold from Cash World, AMC’s representatives being either Mr Cartmer or persons known as ‘Phil’ or ‘Paul’ would usually make a call to their subsequent buyer to obtain a lock-in price. AMC would prepay Cash World for some or all of the gold Cash World supplied to it.
When Cash World supplied the gold to AMC, Cash World claimed that the gold it supplied was scrap gold that did not satisfy the definition of “precious metal” in s 195-1. This was because it was gold blobs and not in investment form, albeit of at least 99.5% fineness. Accordingly, Cash World remitted GST on its taxable supplies of scrap gold. Cash World sold the scrap gold to AMC at a price of 7.75% above the gold spot price inclusive of GST. The Commissioner did not appear to be concerned with the taxable supplies made by Cash World as he had only taken issue with Cash World’s claims for input tax credits in respect of acquisitions involving the Intermediaries. Accordingly, it is unnecessary for the Tribunal to consider those transactions including the form of the gold when it was supplied to AMC.
Cash World did not issue tax invoices with respect to its supplies of gold to AMC. Instead, AMC issued recipient created tax invoices (RCTIs), being a kind of tax invoice recognised under s 29-70(3) of the GST Act, to account for its acquisitions of gold from Cash World. The RCTIs generally described the goods Cash World supplied to AMC as “non-investment gold for refining” or “scrap gold jewellery for refining”.
The form and the sources of gold
The form of the gold when it was acquired by Cash World is a contentious matter in this dispute. The form of the gold depended to a large extent on the Intermediaries’ sources of gold. Cash World stated it was unaware where the Intermediaries were sourcing their gold. Mr Barakat insisted that it was scrap gold because it was not in an investment form.[9] In his written statement, Mr Barakat stated he was “at all material times unaware of where [Mr Demas, Mr Churchward and Mr Walters] were obtaining the scrap gold from”. He also stated he “never knew if they had been melting or altering gold bullion bars to produce scrap”.[10]
[9] Exhibit A2, paragraph [26].
[10] Exhibit A2, paragraph [38].
Mr Barakat claimed to have asked the Intermediaries where the gold was acquired and they apparently told him, something to the effect of “it is none of your business”.[11] In this way, Cash World claimed to not know the Intermediaries were buying gold bullion in investment form. However, as detailed further below, Mr Barakat accepted at the hearing that the gold supplied to it by the Intermediaries was sourced from a few gold bullion dealers and those supplies were treated as input taxed supplies of “precious metal” based on the tax invoices provided by the dealers to the Intermediaries which refer to the supply of bullion. The tax invoices as well as bank statements showing payments made by the Intermediaries were included in the T-documents before the Tribunal.[12]
[11] Exhibit A2, paragraph [37].
[12] See, for example, various tax invoices regarding sales of bullion to Brian Demas at T40, T42, T45 and T47 and extracts from the bank account statements of Brian Demas at T34.
The following tables substantively reproduced from the Commissioner’s SFIC (but without the footnotes) summarise the enormous sales by the bullion dealers to the Intermediaries and the sales by the Intermediaries to Cash World in respect of the Relevant Tax Periods, respectively.[13] The Commissioner noted in his SFIC that the sales by the bullion dealers to the Intermediaries are estimates based on invoices obtained from the bullion dealers, copies of which were contained in the T-documents.[14] The Commissioner explained in his SFIC that a precise summary could not be ascertained due to discrepancies on the face of the invoices.
[13] Respondent’s Amended Statement of Facts Issues and Contentions dated 13 June 2017, paragraph [32]. The omitted footnotes mostly refer to some weights being indicative only as, in some cases, the records did not disclose the weight of the gold delivered.
[14] T40, T42, T45, T47, T49, T51, T53-T55, T65, T75, T77.
Table 1

Part A
Sales by Bullion Dealers to the Intermediaries

Intermediary

Period

Weight
(grams)

Amount Invoiced ($)

Quarter ended 31 December 2014

Brian Demas 28/10/14 – 19/12/2014 377,687 17,562,032.40

Harry Walters 28/10/14 – 07/11/14 19,100 840,941.19

Harry Walters 03/11/14 2000 95,200.00

Subtotal 398,787 18,498,173.59

Quarter ended 31 March 2015

Brian Demas 15/01/2015 – 31/03/2015 739,774 37,833,779.99

Neil Churchward 24/02/15 – 31/3/2015 161,000 8,018,166.10

Harry Walters 02/03/15 – 27/03/15 53,000 2,648,745

Brian Demas 01/15 – 03/15 140,682 7,043,789.00

Subtotal 1,094,456 52,895,735.09

Part B
Sales by Intermediaries to Cash World

Intermediary

Period

Weight
(grams)⁹

Amount Invoiced ($)

Quarter ended 31 December 2014

Brian Demas

28/10/14 – 1/12/2014

353,976

19,603,499.40

Harry Walters

29/10/14 – 03/11/14

Undisclosed

380,550.00

Subtotal

353,976

19,984,049.40

Quarter ended 31 March 2015

Brian Demas

15/01/2015 – 30/03/2014

905,041

48,006,344.00

Neil Churchward

24/02/15 – 31/3/2015

171,000

8,840,934.00

Subtotal

1,076,041

56,847,278.00

The Statement of Agreed Facts about the Intermediaries’ GST affairs

As noted above, Cash World and the Commissioner filed a Statement of Agreed Facts at the hearing in relation to the GST affairs of the Intermediaries. The following information is substantively reproduced from that document
Brian Demas
Mr Demas was registered for GST and remained registered throughout the Relevant Tax Periods having traded at one stage under the name of ‘Accabar Gems’. Mr Demas did not lodge any BASs for the Relevant Tax Periods.
On 21 May 2015, the Commissioner issued assessments which assessed the following net amounts payable by Mr Demas:
(a)$1,655,638 for the quarterly tax period ending 31 December 2014; and
(b)$4,136,327 for the quarterly tax period ending 31 March 2015.
The Commissioner indicated that each assessment assessed Mr Demas in relation to GST on supplies of gold made by him exclusively to Cash World on the basis the supplies were taxable. The Commissioner asserted the assessment is “concurrent” or “alternative” to the assessments issued to Cash World for the same tax periods. Furthermore, that assessment had not been provided to Cash World.
On 3 February 2016, Mr Demas objected to each assessment and the Commissioner has not made an objection decision.
Payments of the GST totalling $172,509.94 were made by third parties to the Commissioner in May and June 2015 and in July 2017 (that is, the payments were made after the Relevant Tax Periods). The third parties included banks to whom the Commissioner had issued garnishee notices pursuant to s 260-5 of Schedule 1 to the TAA. These payments were allocated by the Commissioner to a Running Balance Account established for Mr Demas.
Harry Walters
Mr Walters had not registered himself for GST during the Relevant Tax Periods and had not lodged any BASs in respect of the Relevant Tax Periods.

On 20 May 2015, the Commissioner registered Mr Walters for GST with effect from 1 October 2014 for the purpose of issuing assessments to him.
On 21 May 2015, the Commissioner issued an assessment to Mr Walters which assessed a net amount of $57,340 payable by Mr Walters in respect of the quarterly tax period ending 31 December 2014.
Relevantly, the Commissioner indicated that the assessment assessed to Mr Walters was in relation to GST on supplies of gold made by him exclusively to Cash World on the basis the supplies were taxable. The Commissioner asserted the assessment is “concurrent” or “alternative” to the assessments issued to Cash World for the same tax period. Furthermore, that assessment had not been provided to Cash World.
On 15 March 2016, Mr Walters objected to the assessment and the Commissioner has not made an objection decision.
The Commissioner allocated a total of $33,968.83 to the Running Balance Account established for Mr Walters. This amount represented payments of GST made by third parties during May 2015, January 2017 and August 2017 (that is, after the Relevant Tax Periods), pursuant to garnishee notices issued to them by the Commissioner.
Neil Churchward
Mr Churchward registered for GST on 24 February 2015, being the date of his first sale of gold to Cash World. He elected an annual tax period and, accordingly, the due date for lodgement of Mr Churchward’s GST return for the year ended 30 June 2015 was 31 October 2015.
On 21 May 2015, the Commissioner issued Mr Churchward an assessment which assessed a net amount of $747,081 payable in respect of the tax period 1 January 2015 to 31 March 2015. That assessment was a special assessment made by the Commissioner pursuant to s 155-25 of Schedule 1 to the TAA. Relevantly, the Commissioner indicated that the assessment assessed Mr Churchward in relation to GST payable on supplies of gold made by him exclusively to Cash World on the basis each supply was taxable. The Commissioner asserted the assessment is “concurrent” or “alternative” to the assessments issued to Cash World for the same tax period. Furthermore, that assessment had not been provided to Cash World.
On 14 April 2016, Mr Churchward objected to the assessment and the Commissioner has not made an objection decision.
The Commissioner allocated a total of $7,562.85 to the Running Balance Account established for Mr Churchward. This amount represented payments made by third parties after the Relevant Tax Periods, pursuant to garnishee notices issued to them by the Commissioner.
Cash World’s paperwork and bank records
As to documentary matters, Cash World says that in or around November 2014, Mr Barakat obtained some pro forma ‘Scrap Metal Applications’ and ‘Country Origin Declarations’ from a refinery and required each of its gold suppliers, including the Intermediaries, to complete these forms. Mr Demas and Mr Churchward each completed the Scrap Metal Application forms.[15] Mr Demas stated the source of the gold was wholesalers and local origin whereas Mr Churchward stated the source was individuals and local origin. As already noted at [86]-[87] above, there is incontrovertible evidence in the T-documents that bullion dealers supplied the Intermediaries with the gold bullion.[16]
[15] T37-588.
[16] T41-615 - T43-667.
From about 10 November 2014, Mr Demas, Mr Walters and Mr Churchward were also required by Cash World to complete a ‘Country Origin Declaration’ with every sale of gold, and the declaration would then be kept with each document headed “TAX INVOICE/ STATEMENT” issued by the Intermediaries to Cash World. The invoices are considered in further detail below, although it is appropriate to note at the outset that none of the so-called “tax invoices” issued by the Intermediaries to Cash World in relation to the sale of gold identified any GST amount and only a few of the tax invoices specified the quantity of gold supplied.[17] With respect to the Country Origin Declaration forms, it is sufficient to note that these record the shipment number, invoice number, weight, approximate assay, approximate value, as well as the legal ownership and country of origin of the gold and were signed by the suppliers.[18] Additionally, Cash World also kept some photos of the scrap gold which were attached to some of the tax invoices. Examples of these were produced as exhibits at the hearing.[19]
[17] See, for example, Exhibit A7, Tax invoice issued by Brian Demas to Cash World dated 3 December 2014 refers to Assorted Gold Bars 98% to (9% Pure 10,000 grams $483,500.
[18] See, for example, T44-703.
[19] See, for example, Exhibits A5, A6 and A7, Tax invoices issued by Brian Demas to Cash World together with photos of melted gold ingot bars; Exhibit A5 refers to Assorted Doray/Gold Bars 98% purity for $201,200.
Extracts from the Commonwealth Bank of Australia account statements for Cash World’s business transaction account relevantly disclose as follows:[20]
(a)Cash World made payments to Mr Demas, Mr Walters and Mr Churchward by electronic funds transfers subject to real time gross settlement (RTGS). This allowed money transferred from Cash World’s bank account into accounts held by the Intermediaries with different banks to be immediately available. Cash World also made significant withdrawals of cash and made payments to the Intermediaries in cash.
(b)During the quarterly tax period ended 31 December 2014, Cash World made payments to Mr Demas and Mr Walters totalling $18,842,766 ($18,212,016.00 to Mr Demas and $630,750 to Mr Walters).
(c)During the quarterly tax period ended 31 March 2015, Cash World made payments to Mr Demas and Mr Churchward totalling $53,717,493.00 ($45,499,599.00 to Mr Demas and $8,217,894.00 to Mr Churchward).
(d)During the quarterly tax period ended 31 March 2015, Cash World received payments from AMC and another entity it sold gold to, and various other sources, totalling $120,820,918.96. Of that amount, $110,122,115.00 came from Cash World’s main customer, AMC.
[20] T24-282 – T25-376.
Procedural history of GST dispute
The large volume of gold transactions caught the attention of the Commissioner and, on 21 May 2015, following a covert audit into Cash World’s GST affairs, the Commissioner issued the following notices of assessment to Cash World:
(a)a notice of amended assessment of net amount in the sum of $1,712,978 for the quarterly tax period ended 31 December 2014;
(b)a notice of assessment of net amount in the sum of $4,851,344 for the quarterly tax period ended 31 March 2015;
(c)a notice of assessment and liability to pay penalty of $856,489 for the quarterly tax period ended 31 December 2014; and
(d)a notice of assessment and liability to pay penalty of $3,683,508 for the quarterly tax period ended 31 March 2015.
Also, on 21 May 2015, the Commissioner relevantly issued a letter to Cash World advising that “[o]ther entities have been concurrently assessed in relation to what we consider were their gold dealings with you for the relevant tax periods. Pending any objection, review or appeal to our assessments, we may amend the assessments to ensure that the correct amount of tax has been paid or is payable”.[21] The “other entities” referred to in that letter are Mr Demas, Mr Walters and Mr Churchward, as evident from the Statement of Agreed Facts provided by the Commissioner and Cash World at the hearing (see [88]-[103] above).
[21] T3-9.
On 16 July 2015, Cash World objected to the abovementioned assessments issued to it. With respect to the disallowed input tax credits, Cash World contended that for the quarterly tax period ended 31 December 2014, the credits claimed by it represented 1/11th of the consideration Cash World provided to Mr Demas (who was GST registered) and Mr Walters (who was not GST registered) for acquisitions of scrap gold. Cash World claimed to be entitled to input tax credits because Mr Demas had made taxable supplies. Cash World relied on Div 66 in relation to claiming input tax credits for acquisitions from Mr Walters. Cash World effectively contended it acquired $18,842,766 worth of scrap gold from Mr Demas and Mr Walters for the quarterly tax period ended 31 December 2014.
Cash World also contended it is entitled to additional input tax credits of $5,266,508 for the quarterly tax period ended 31 March 2015 as, in assessing Cash World’s net amount for this period, the Commissioner understated both its total sales (by $5,868,604) and its total purchases (by $57,480,601). Cash World contended the latter included the consideration it provided to Mr Demas and Mr Churchward for the acquisition of scrap gold in that latter tax period.
On 24 September 2015, Cash World requested the Commissioner to make a decision in respect of the objection pursuant to s 14ZYA of the TAA. On 23 November 2015, the Commissioner was taken to have made a decision to disallow the objection as he did not make a decision within the 60 day time period.
On or about 24 November 2015, the Commissioner remitted the administrative penalty in its entirety that was assessed for the quarterly tax period ended 31 March 2015. Briefly, it appears the Commissioner had issued the notice of assessment of penalty on 21 May 2015 for the 31 March 2015 tax period on the basis that Cash World had not lodged its BAS by the due date. However, the due date for electronic BAS lodgement by a registered tax agent (which Cash World was using) was 26 May 2015.
On 10 January 2016, Cash World filed an application for review of the Commissioner’s objection decision in the Tribunal.
THE EVIDENCE
At the hearing, Cash World relied upon the testimony of several lay witnesses including

Mr Talal Barakat and Cash World’s bookkeeper, Mr Bruce Welch. It also relied on documentary evidence, including the tax invoices, many of which were contained in the

T-documents, as well as other documents tendered at the hearing.
At the request of the Commissioner, the Tribunal had issued summonses for Mr Demas, Mr Walters and Mr Churchward to attend and give oral evidence, but the Commissioner decided not to call any of them and they were accordingly excused. However, amongst the T-documents are transcripts of compulsory interviews of Mr Demas, Mr Walters and Mr Churchward, each of which were undertaken by the Commissioner in June 2015 shortly after the notices of assessments were issued to each of them and to Cash World.[22] Both Cash World and the Commissioner sought to rely on the transcripts of the ATO interviews of the Intermediaries at the hearing without pointing the Tribunal to any specific passages. I have had regard to what was said in those compulsory interviews, as set out below.
[22] T30-407, T59-1148, T69-1277.
Mr Talal Barakat
As the sole director and controlling mind of Cash World, as well as the principal in Cash World’s business, Mr Barakat was a crucial witness in this proceeding, especially in the absence of the Intermediaries. He provided two written statements as well as oral evidence for Cash World.[23] He was extensively cross-examined.
[23] Exhibit A2, Exhibit A3, Statement of Talal Barakat dated 2 February 2018, Transcript P-19-P-113, P-122-P-189, P-271-P-283, P-286-P-296.
I found much of his evidence to be unreliable.
A convenient starting point is the tax invoices issued by the Intermediaries to Cash World. Counsel for the Commissioner asked Mr Barakat whether the invoices did not specify an amount of GST because what was being supplied to Cash World was pure gold bullion, namely, investment grade bullion or “precious metal”, as defined in the GST Act. Mr Barakat denied this.[24] He also denied that the terms “assorted gold bars” or “assorted doray bars” (sic), which were the descriptions written by the Intermediaries on virtually all of the invoices, were used to disguise the fact the bars were investment grade bullion.[25] According to Mr Barakat, the invoices provided by the Intermediaries looked like tax invoices because the words “total inclusive of GST” were never crossed out and they contained an ABN. He said that he did not know that tax invoices had to identify the quantity or weight of the gold and the amount of GST to be valid.[26] He said he also got reassurance from his bookkeeper that they were tax invoices.[27] When asked where on the invoices the amount of GST was shown, he said “it’s in the price”.[28] While he is right that the GST, if any, is always in the price for a supply (by virtue of ss 9-70 and 9-75 of the GST Act), I do not accept that he was unaware of the specific requirement for the GST amount to be shown in tax invoices. Besides, Mr Welch’s evidence, as detailed below, is that he raised with Mr Barakat the fact that the tax invoices were not compliant.
[24] Transcript P-30.
[25] Transcript P-33 and P-35.
[26] Transcript P-41 – P-42.
[27] Transcript P-25.
[28] Transcript P-26.
On the topic of the sources of gold, Mr Barakat denied having any knowledge of where the Intermediaries acquired the large quantities of gold that they sold to Cash World.[29] He said he didn’t think there had to be an explanation as to where they were acquiring it from and “didn’t think of it at the time”, when queried as to how they could sell such large quantities of gold and with such frequency to Cash World.[30] He denied that he asked the Intermediaries to go and buy gold bullion for him.[31] At one stage during cross-examination, when he was asked by the Commissioner’s counsel to explain how the Intermediaries could consistently manage to source the large volume of gold at consistently 99.98% purity, and the fact that they must have been buying bullion bars, Mr Barakat replied “no, maybe they were getting it from the ground, I don’t know”.[32] The following exchange then took place:[33]
Ms Stern: You know that the overwhelming likelihood when someone turns up on your case at your door with 17 kilograms of 99.98 per cent gold in gold bars, having turned up the day before with eight kilograms, you agree with me the overwhelming likelihood is that they have sourced that from a bullion refiner?
Mr Barakat: I don’t know, I wasn’t with them and I don’t know.
Ms Stern: And you knew that at the time, Mr Barakat, didn’t you?
Mr Barakat: No, I didn’t.
[29] Transcript P-34.
[30] Transcript P-36.
[31] Transcript P-37.
[32] Transcript P- 66.
[33] Transcript P-68.
I did not consider Mr Barakat to be a credible witness. On his own evidence, the purpose of his visit to Queensland to meet with Mr Demas was to do business with Mr Demas with respect to gold. Mr Barakat had considerable experience in the jewellery industry and would have understood the Intermediaries were purchasing gold bullion from bullion dealers, especially having regard to the significant quantities of gold involved and the frequency of the gold transactions.
As to the Scrap Metal Application form completed by Mr Demas, Mr Barakat said that he did not tell Mr Demas what to put on the form.[34] When counsel for the Commissioner probed him as to why Cash World needed that form, he said AMC gave it to him and he “thought it might have been a good idea” and “it was just important to have.”[35] He further said “if they were going to supply me scrap obviously it’s a good idea to have a scrap metal application”.[36] When it was pointed out to Mr Barakat by counsel for the Commissioner that he had asked Mr Demas to complete the form well after Mr Demas began supplying Cash World with gold and not at the time Mr Demas’ account was opened, Mr Barakat explained he had made an error.[37] I did not consider Mr Barakat to be forthcoming in his evidence.
[34] Transcript P-42.
[35] Transcript P-43.
[36] Transcript P-43.
[37] Transcript P-45.
Incredulously, Mr Barakat denied knowing why anyone would melt down gold bullion.[38] His oral evidence expressly contradicted his written statement where he referenced an article he had seen in the The Daily Telegraph published on 13 December 2014 titled ‘Gold -standard scam, but we won’t have a bar of it’. He said in his written statement that he would show that article to persons who he had doubts about and who were selling scrap gold to Cash World.[39] I formed the view that Mr Barakat clearly knew why people were melting gold – to turn it into taxable supplies of scrap gold which facilitated the claiming of input tax credits – although he claimed to be ignorant of the GST advantages.
[38] Transcript P-60.
[39] Exhibit A2, paragraph 40.
The following exchange occurred between counsel for the Commissioner and Mr Barakat about the gold pricing impacts for the Intermediaries.[40]
Ms Stern: You knew that if Mr Demas and Mr Walters and Mr Churchwood (sic) were charging you a GST inclusive price then they would have only got to keep 95 per cent of the spot price, didn’t you?
Mr Barakat:    Can you say that again please.
Ms Stern: We know you paid each of them 105 per cent of the spot price?
Mr Barakat:    Sure, 95 per cent plus 10 per cent GST, is that what you mean?
Ms Stern: Right, that’s exactly what I mean. So you knew that if they were actually charging you a GST inclusive price they would only be getting to keep 95 per cent of the gold price, right?
Mr Barakat:    It makes sense.
Ms Stern: So if they had had to buy bullion in order to supply it to you they were going to make a 5 per cent loss on every transaction weren’t they?
Mr Barakat:    I don’t know.
[40] Transcript P-61.
As evident from the above extract, Mr Barakat could not satisfactorily explain why the Intermediaries, on his evidence, would have been prepared to make a loss on each transaction if GST was included in the price of the gold they sold to Cash World and required to be remitted to the Commissioner. Clearly, he, and therefore, Cash World, must have known that it was uneconomic for the Intermediaries to sell gold at prices which were less than the prices paid for the gold acquired, where they had to pay GST on their taxable supplies to Cash World. He and, therefore, Cash World must have known that the Intermediaries were not paying GST to the Commissioner on the supplies of gold to Cash World.
Mr Barakat was unco-operative and unwilling to accept the Intermediaries must have been sourcing investment grade gold bullion from bullion dealers. His persistent denials of any knowledge about the sources of the gold are not plausible. Similarly, Mr Barakat’s denials about knowledge of the melting of the investment grade gold bullion into “sweated bars” are also not plausible. No credible explanation was offered as to how the Intermediaries were able to source such large quantities of gold and also arrange, at least on some occasions, for the melting of the investment grade bullion before selling it to Cash World.
There were other inconsistencies. Mr Barakat’s oral evidence was that he would pay for the gold from the Intermediaries in cash, by cheque or electronically. This was contrary to his written statement where he categorically stated that “all purchases were paid for by way of electronic funds transfer”.[41] When asked why his witness statement was inconsistent with his oral evidence, Mr Barakat replied “no reason; I don’t know”.[42]
[41] Transcript P-66.
[42] Transcript P-184 – P-185.
Mr Barakat was also not convincing when he accused his bank of “making up” information about his personal income on a loan application form that he had signed, where his gross income was declared to be $175,000, which was found to be untruthful. The loan application form was for the purpose of a loan of $840,000 to purchase property.[43] Mr Barakat had separately declared to the Commissioner in his income tax return for the same period that his gross income was nil.[44] While this information was not relevant to the GST issues in dispute in this proceeding, it did discredit Mr Barakat as a truthful witness.
[43] Exhibit R3.
[44] Exhibit R2 and Transcript P-71 – P-72.
Mr Barakat repeatedly maintained his version of events which was that all the gold purchased by Cash World from the Intermediaries was not in bullion form, by which he meant it was not investment grade bullion or “precious metal” for the purposes of the GST Act. But repeatedly stating it, did not make it so. His reliance on the invoices prepared by the Intermediaries for the sale of the gold to Cash World as primary records evidencing the sale of scrap gold was singularly unhelpful as the so-called tax invoices were incomplete and, in my view, deliberately vague. I am of the opinion that the invoices were ambiguous, by design, to potentially support an argument that they were valid tax invoices for the taxable supply of scrap gold for Cash World’s purposes. Mr Barakat failed to persuade me that all the gold sold by the Intermediaries to Cash World was scrap gold.

Cash World submitted that it had undertaken a 100 point identification check of Mr Demas and Mr Churchward and ensured it received a Scrap Metal Application form from them and checked their GST status through the online ‘ABN Lookup’ search function. Cash World also stated it obtained advice from Mr Welch that the tax invoices were adequate. At one stage, according to Mr Welch’s evidence, Cash World through Mr Barakat also asked the Intermediaries to improve their tax invoices, but they refused. This was separately corroborated by Mr Demas in his ATO interview in June 2015 (see [174] above). Cash World submitted it took reasonable care and acted in good faith. Accordingly, Cash World submitted that the invoices issued by Mr Demas and Mr Churchward satisfied the requirements of s 29-70 or ought to be accepted by the Tribunal as satisfying those requirements pursuant to s 29-70(1B).
In my view, none of the invoices relied on by Cash World comply with the requirements of s 29-70(1) nor is this an appropriate case for the invoices to be treated as tax invoices under s 29-70(1B). This is because many of the invoices fail to describe the quantity or weight of the gold supplied and none of the invoices identify any amount of GST payable. All the invoices issued are headed ‘TAX INVOICE*/STATEMENT* (*DELETE AS APPROPRIATE)’ but in none of them has the word ‘STATEMENT’ been crossed out to make clear the document is intended to be a tax invoice. Instead, the invoices were, in my view, deliberately ambiguous.
Accordingly, Cash World is not entitled to claim input tax credits in respect of any acquisitions of scrap gold it made because it did not hold tax invoices when it lodged its BASs: s 29-10(3). The language of s 29-70(1) is clear: a document is only a tax invoice if it complies with the requirements set out therein. Cash World’s submission that s 25C of the Acts Interpretation Act 1901 (Cth) may have application in relation to the invoices is misplaced in the face of the specific requirements of s 29-70(1) and the discretion conferred by s 29-70(1B). I agree with the submissions of counsel for the Commissioner that s 25C of the Acts Interpretation Act 1901 (Cth) is not a provision capable of cutting down the requirements specified in s 29-70(1) and, therefore, does not admit a “half good” tax invoice.
Cash World did not, as it suggests in its written submissions, take reasonable care and act in good faith in claiming input tax credits with respect to acquisitions recorded on these invoices. It systematically failed to ensure that the documents upon which it relied to substantiate millions of dollars in input tax credits are valid tax invoices and it knew or must have known that the documents were dubious as Mr Barakat had asked Mr Demas to set out desired wording on the invoices, which Mr Demas refused. Mr Welch said he had told Mr Barakat the invoices were “a bit dodgy”. Moreover, Cash World offered no compelling reason why the discretion contained in s 29-70(1B) of the GST Act ought to be exercised in its favour to treat the invoices as tax invoices, and I find there is none. I formed the view Cash World was content to receive these documents because, so far as Cash World was concerned, the documents gave the false impression of being tax invoices which allowed it to proceed to claim input tax credits in its BASs. More importantly, the deficiencies in the tax invoices were symptomatic of the fact that Cash World could not demonstrate to the Tribunal the extent to which it made any creditable acquisitions of scrap gold from the Intermediaries.
As already noted, the Commissioner had another back-up argument to the effect that if Cash World established that it made acquisitions from the Intermediaries, (that is the Intermediaries were not agents of Cash World), the acquisitions were not creditable acquisitions under Div 11 of the GST Act because the acquisitions were acquisitions of “precious metal” which was input taxed. This was because the precious metal acquired by Cash World from the Intermediaries was the same gold bullion the Intermediaries originally acquired from the bullion traders. Furthermore, the Commissioner contended that, to the extent any alteration was made to the gold bullion so as to transform the gold into a form other than “precious metal”, the alterations were made by Cash World or under its direction by the Intermediaries after the acquisition of the bullion by Cash World.
I have concluded that the Intermediaries sold gold in both precious metal and scrap gold to Cash World, however, the extent to which the Intermediaries made input taxed supplies of precious metal and taxable supplies of scrap gold to Cash World is wholly uncertain because of the shortcomings in Cash World’s evidence, including the deficiencies in the invoices. It is likely the alterations to the gold bullion, namely, the melting done by the jewellers, on the occasions when it was arranged by the Intermediaries, was at a time when they owned the gold before the gold was sold by the Intermediaries to Cash World. I consider this to be the case because of my conclusion that the Intermediaries purchased the gold bullion in their own right and took it the jewellers for melting before they sold it to Cash World, but it is something I do not have to ultimately decide. The fact that the Intermediaries arranged for the melting of the gold, on some occasions, at the request of Cash World does not change this analysis. Regardless, Cash World is still not entitled to claim input tax credits due to its failure to persuade me of the extent to which it made acquisitions of taxable supplies of scrap gold from the Intermediaries and its failure to hold valid tax invoices. Ultimately, those aspects were fatal to Cash World’s claims for input tax credits under Div 11 of the GST Act.
ISSUE 3 – DID CASH WORLD MAKE CREDITABLE ACQUISITIONS OF GOLD IN RESPECT OF WHICH IT IS ENTITLED TO CLAIM INPUT TAX CREDITS UNDER DIVISION 66 OF THE GST ACT?
To the extent that the acquisitions made from the Intermediaries were not taxable supplies, Cash World relies on Div 66 of the GST Act, namely, the second-hand goods rules, for claiming input tax credits in respect of acquisitions from the Intermediaries. As set out at [50] above, s 66-5(1) applies to a registered entity which acquires “second-hand goods”, as defined, where input tax credits would otherwise not be allowed under Div 11 of the GST Act.
At the time of the relevant transactions, the definition of “second-hand goods” in s 195-1 (as set out in [52] above), did not relevantly include: “(a) precious metal; or (b) goods to the extent that they consist of gold, silver, platinum, or any other substance which, if it were of the required fineness, would be precious metal…”. Clearly, the definition of “second-hand goods” does not include “precious metal”, as defined. But the Commissioner says that Div 66 of the GST Act also does not apply to allow input tax credits for non-precious metal (that is, scrap gold) acquired otherwise than through a taxable supply because of his interpretation of paragraph (b).
The Commissioner contended that paragraph (b) of the former definition of “second-hand goods” must be read as if the words “and in investment form” had been inserted after the word ‘fineness’ so that non-precious metal (that is, scrap gold) is also not included in the definition of “second-hand goods” and therefore, not eligible for input tax credits under s 66-5(1). On this reading, any scrap gold that Cash World acquired from the Intermediaries would not be “second-hand goods” because it would be within the meaning of paragraph (b) being goods consisting of gold which if they were of the required fineness and in investment form, would be precious metal.
I agree with the submission of counsel for Cash World that the Commissioner’s interpretation is plainly incorrect and not permissible on the basis of the statutory definition of what is not included as “second-hand goods”. There is no basis to read the definition of second-hand goods as if there were additional words. There is only one meaning open and as it does not lead to any absurdity, that is the meaning. As to the relevant principles of statutory construction, see generally Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (Northern Territory) (2009) 239 CLR 27 at [47] and the requirement that one “must begin with a consideration of the text itself”.
It was common ground that Cash World acquired the goods for the purposes of sale, but not for manufacture, in the ordinary course of business and so the other criteria of s 66-5(1) were satisfied.
However, as with its claims for input tax credits under Div 11, Cash World’s insurmountable difficulty with respect to claiming input tax credits under Div 66 is that it was not able to demonstrate to what extent the supplies to it from the Intermediaries were second-hand goods, noting that the definition excluded precious metal. Further, Cash World relied on certain documents headed ‘Customer Statements’ which it produced, to satisfy the requirements of s 66-17(2) of the GST Act (see [54] above). But not all of the Customer Statements contained details of the quantity of gold acquired by Cash World. For its part, Cash World submitted that this is a minor deviation from the requirements in s 66-17(2) and the Customer Statements were in some cases prepared by the Intermediaries. It submitted the Customer Statements ought to be treated as substantially complying with s 66-17(2). It is impossible, however, for the Tribunal to gloss over the words in s 66-17(2) which expressly state “[t]o comply with this section, the record must: … (b) describe the goods (including their quantity) …” Consequently, Cash World is not entitled to claim input tax credits pursuant to Div 66 of the GST Act. Further, to the extent that some of the Customer Statements did included details of the quantity of the gold supplied, as was the case with Exhibit A4, I was not persuaded that the items the subject of that Customer Statement were scrap gold and not precious metal, in circumstances where the description was shown as “Assorted Doray Bars” (sic) and having regard to my conclusions on the evidence.
ISSUE 4 – DOES DIVISION 142 OF THE GST ACT APPLY TO ALLOW CASH WORLD TO CLAIM INPUT TAX CREDITS?
Broadly, the purpose of Div 142 is to prevent suppliers who have “passed on” the economic burden of GST to a recipient of a supply from obtaining a windfall gain by subsequently seeking a refund of the GST from the Commissioner without reimbursing the recipient. Even where the amount of that GST may have been paid by mistake to the Commissioner, Div 142 nonetheless operates to ensure that the excess GST that is “passed on” to the recipient, is, and was, properly payable unless and until the supplier refunds the “passed on” GST to the recipient of the supply (s 142-10).
As noted at [59] above, s 142-10 deems the supply to be a taxable supply in those circumstances for the purposes of each taxation law and, accordingly, the recipient of the supply is entitled to an input tax credit for the amount of excess GST as if it were GST payable on a taxable supply under Div 11. The latter point is the critical one for this proceeding because Cash World submitted that it is entitled to claim input tax credits pursuant to Div 142 even if the Intermediaries did not make taxable supplies to Cash World under the provisions of the GST Act, for whatever reason including, for example, if the Intermediaries charged GST on input taxed supplies of precious metal. Specifically, Cash World submitted “excess GST” was “passed on” to it for the purposes of s 142-10. Therefore, even if the supples by the Intermediaries would not, apart from the operation of Div 142 have been taxable supplies, the supplies are deemed to be taxable supplies by virtue of s 142-10. Cash World further submitted the “excess GST” arose because the Commissioner issued assessments for net amounts of GST to each of the Intermediaries. It will be remembered that “excess GST” is an amount of GST that has been taken into account in an assessed net amount, that is not otherwise payable under the GST Act. As already referenced above, the proposition that “excess GST” can arise by way of the Commissioner issuing assessments of net amount to the Intermediaries is correct as it follows from the meaning of “assessed net amount” in s 195-1. Additionally, Parliament refers in the Explanatory Memorandum to the fact that it does not matter how the excess GST arose, and recognises that, in practice, excess GST can arise as a result of a range of circumstances including incorrectly treating an input taxed supply as a taxable supply.
Cash World’s difficulty, however, is that it has not demonstrated that the Intermediaries did in fact “pass on” any excess GST to it. Although there is no express definition of “passed on”, it has a meaning affected by s 142-25, which relevantly provides that some or all of an amount of GST may have been passed on to another entity even if a tax invoice is not issued to that other entity or does not contain enough information to enable that GST to be clearly ascertained because the GST component is not separately identified. I find that there was no GST passed on where the prices charged by the Intermediaries did not recover any amount on account of GST. In this regard, it was plainly uneconomic for the Intermediaries to sell gold at prices of approximately 105% of the spot price of gold having purchased the gold from bullion dealers for the spot price plus a margin, in circumstances where they were required to remit GST. The reality is, the GST was never factored into the price that was charged by the Intermediaries to Cash Gold because they never considered it to be payable on “pure gold” (see [174] above). It follows, the Intermediaries did not pass on the GST in the price of the gold sold to Cash World, despite Cash World’s repeated pronouncements that the price it was paying was inclusive of GST. This conclusion is not affected by ss 9-70 and 9-75 of the GST Act.
Further, Mr Demas, Mr Walters and Mr Churchward did not remit the GST to the Commissioner on any of their taxable supplies as evident from the Statement of Agreed Facts. Cash World must have known this as evident from the cross-examination of Mr Barakat. If there was any excess GST, s 142-15(5) specifically covers the situation if and while the recipient (Cash World) knows or could be expected to have known that the supplier (Mr Demas, Mr Walters, Mr Churchward) has not paid the excess GST. That subsection effectively denies the recipient the input tax credit. There is a qualification to the application of s 142-15(5) because the Commissioner obtained some payments from third parties who had been issued with garnishee notices and those payments were credited to the Running Balance Accounts of Mr Demas, Mr Walters and Mr Churchward (see [93], [99] and [103] above). On the premise that those third party payments are amounts that the Intermediaries are taken to have paid to the Commissioner, which Cash World became aware of, at the latest at the hearing, there is an issue as to whether s 142-15(5) applies. However, it is an issue which does not have to be determined here because of the conclusion reached that there was no excess GST passed on.
Another issue which emerged and which can be conveniently canvassed at this juncture concerns Cash World’s contention that the Commissioner has sought to recover GST from Cash World (by denying input tax credits) at the same time as seeking to recover GST from the Intermediaries on the basis that they made taxable supplies to Cash World. Cash World complained that the Commissioner was opportunistic in his approach by relying on alternative facts. It will be recalled the Commissioner put various arguments, including that the Intermediaries couldn’t have made taxable supplies because they were not carrying on an enterprise and so he was covering his bases just as Cash World had practically relied on Divs 11, 66 and 142 for claiming its input tax credits. However, Cash World’s complaint narrowed down to the fact the Commissioner issued assessments to Mr Demas, Mr Walters and Mr Churchward for the underpaid GST. This meant they each had “assessed net amounts” which included the same GST. Also, it transpired as per the Statement of Agreed Facts, that the Commissioner had recovered amounts owed by the Intermediaries from third parties pursuant to garnishee orders at the same time as he had sought to deny the input tax credits claimed by Cash World. That is, the Commissioner was not just keeping his options open.
Cash World submitted that the assessments are in fact cumulative assessments which were issued contrary to the Commissioner’s stated procedures regarding alternative assessments in the income tax context and impermissibly seek double recovery of GST on the same transactions. The Commissioner adopted the view that he is entitled to issue multiple assessments. Counsel for the Commissioner also submitted that the Commissioner would not seek to recover the GST twice. This submission was coherent with the Commissioner’s letter to Cash World dated 21 May 2015 referred to at [108] above.
Were the Commissioner to succeed against both Cash World and the Intermediaries, it appears that the Commissioner would be in a position to recover the GST amounts twice and, furthermore, may be required to do so without necessarily having a choice in the matter (leaving aside issues with respect to the good management rule and when it is appropriate for the Commissioner to settle tax disputes). In my view, there remains an unresolved issue as to the efficacy of the Commissioner recovering GST amounts twice. However, the double recovery of the GST is not determinative of this dispute and does not give rise to an issue for determination by the Tribunal.
ISSUE 5 – THE PENALTIES ISSUES
The Commissioner argued the penalties were correctly imposed on Cash World and there are no grounds for remission.
Section 284-75(1) of Schedule 1 to the TAA permits the Commissioner to impose administrative penalties where a taxpayer makes a statement – in the BAS, for example – that is false or misleading in a material particular and that statement results in a tax shortfall. In this case, the Commissioner decided the penalty should be imposed at a rate of 50%. A 50% penalty is appropriate where the shortfall was the product of recklessness on the part of the taxpayer or its agent with respect to the operation of a taxation law: s 284-90(1) Item 2.
Liability under s 284-75 may be avoided if a taxpayer has used the services of a tax agent and provided that agent with all relevant information and the tax agent did not make the false statement deliberately or recklessly: s 284-75(6) of Schedule 1 to the TAA. However, Cash World cannot avail itself of s 284-75(6) because Cash World and its agent were reckless in all the circumstances. They did not have a proper basis for asserting Cash World only ever made creditable acquisitions. Mr Barakat and Mr Welch knew that was not the case.
Moreover, a reasonable person would have taken appropriate steps to ensure their records were accurate. Instead, Mr Barakat and Mr Welch apparently operated on the basis that the invoices were “a bit dodgy” or vague enough so as to potentially support the claiming of input tax credits if a dispute arose. But, for the reasons set above, the invoices did not comply with the statutory provisions. Accordingly, I do not accept that Cash World is excused from its liability at the rate of 50% penalty.
Cash World has not provided me with any arguments or evidence suggesting it would be appropriate to remit any part of the penalty under s 298-20 of Schedule 1 to the TAA. In those circumstances, the penalty decision should be affirmed.
CONCLUSION
The Commissioner’s decision in respect of the objection to the assessment of net amount of GST for the Relevant Tax Periods is affirmed. The Commissioner’s decisions with respect to the imposition of penalty and the non-remission of penalty are also affirmed.

I certify that the preceding 231 (two hundred and thirty-one) paragraphs are a true copy of the reasons for the decision herein of Ms G Lazanas, Senior Member

.......................[sgd]............................................
Associate
Dated: 28 May 2020

Dates of hearing: 4 - 8, 12 - 13 June and 31 July 2018

Counsel for the Applicant:
Mr H Miller

Solicitors for the Applicant King and York Lawyers

Counsel for the Respondent: Ms K Stern SC, Mr B Kasep

Solicitors for the Respondent: Australian Government Solicitor

[2020] AATA 1546

28 May 2020

Key Legal Topics

Areas of Law

Tax Law

Statutory Interpretation

Commercial Law

Legal Concepts

Appeal

Statutory Construction

Remedies

Penalty

Procedural Fairness

Part A Sales by Bullion Dealers to the Intermediaries
Intermediary	Period	Weight (grams)	Amount Invoiced ($)
Quarter ended 31 December 2014
Brian Demas	28/10/14 – 19/12/2014	377,687	17,562,032.40
Harry Walters	28/10/14 – 07/11/14	19,100	840,941.19
Harry Walters	03/11/14	2000	95,200.00
Subtotal	398,787	18,498,173.59
Quarter ended 31 March 2015
Brian Demas	15/01/2015 – 31/03/2015	739,774	37,833,779.99
Neil Churchward	24/02/15 – 31/3/2015	161,000	8,018,166.10
Harry Walters	02/03/15 – 27/03/15	53,000	2,648,745
Brian Demas	01/15 – 03/15	140,682	7,043,789.00
Subtotal	1,094,456	52,895,735.09

Part B Sales by Intermediaries to Cash World
Intermediary	Period	Weight (grams)⁹	Amount Invoiced ($)
Quarter ended 31 December 2014
Brian Demas	28/10/14 – 1/12/2014	353,976	19,603,499.40
Harry Walters	29/10/14 – 03/11/14	Undisclosed	380,550.00
Subtotal	353,976	19,984,049.40
Quarter ended 31 March 2015
Brian Demas	15/01/2015 – 30/03/2014	905,041	48,006,344.00
Neil Churchward	24/02/15 – 31/3/2015	171,000	8,840,934.00
Subtotal	1,076,041	56,847,278.00

Dates of hearing:	4 - 8, 12 - 13 June and 31 July 2018
Counsel for the Applicant:	Mr H Miller
Solicitors for the Applicant	King and York Lawyers
Counsel for the Respondent:	Ms K Stern SC, Mr B Kasep
Solicitors for the Respondent:	Australian Government Solicitor